Regional Disruptions – A Pro-Active Government Beyond Redistribution

What can a government do to proactively counter regional upheavals that threaten to arise through globalization or climate policy? Jens Südekum has written a study on this for the Forum. He presented the first results at our X New Paradigm Workshop, which were commented on by renowned top economists such as council of economic experts member Monika Schnitzer, IAB economist Enzo Weber and Thiemo Fetzer. A particular focus of the debate was on the question what can be derived from the compensation of coal regions for future major transformations such as that of the automotive industry.

Jens Südekum started by noting that place-based policies have sharply risen on the government’s agenda. The current debate is no longer about whether regional policies are necessary but how they can be designed proactively. As an example for a regional policy package Südekum highlighted the German coal exit. Even though in terms of number of workers the coal sector is relatively small, a financially large support package was proposed by the German Kohlekommission, tasked to handle the sector’s transformation. He remained skeptical however with regards to using the package as a test case for other industry transformations, due to its particular salience in the public debate and strong regional concentration. Rather than relying on a sample case, the goal for regional industrial policies should be a mix of horizontal policy elements (modernizing and future-proofing existing amenities and infrastructure) and vertical policy elements (a push for new infrastructure and ‘moonshot’ projects). Enzo Weber added that regional policy should not only be about subsidizing people, but also about supporting them. This should also include incentivizing career switches.

Monika Schnitzer noted the difficulty of pushing for vertical policy changes.

The automotive industry represents an example of such behavior, said Schnitzer. At the same time, it is important to consider that people are often less mobile than assumed, transforming existing business models while also luring in new companies into a region can be considered essential, Schnitzer argued. Digital tools can play a huge part in this process.

Thiemo Fetzer voiced more general accountability concerns.

The question hence arises how political institutions can be designed to deliver forward looking policy solutions. While Germany has a strong regional cohesion framework, oftentimes the underlying economic system produces outcomes that are at contrast to evening out regional economic inequalities. Hence, a paradigm shift needs to happen beyond a specific focus on regional economic policies. “If we think about the public sector, it is still stuck in a non-digital age, and mostly focused on regulation rather than acting proactively. Our focus should be on redesigning political institutions so we can realize win wins.”

The debate ended with an acknowledgement of the importance of regional policies for liberal democracies on a more broader level. Left behind regions often vote for populist parties. While transformation processes can ultimately benefit the respective regions, whatever regional policy package is designed in each case, the process needs to be democratic and transparent.